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Fallout from the panic

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The Panic of 1884 started with the bankruptcy of the Grant and Ward investment firm. The firm was started by Ulysses S. “Buck” Grant, Jr. and Ferdinand De Wilton Ward, Jr. Initially, the firm backed by the Marine National Bank of New York and James D. Fish, director of the bank was successful at drawing investors. Believing the firm was successful, former President Ulysses S. Grant invested $100,000 in the firm, like his son. Veterans were drawn to the firm by President Grant. Millionaires were attracted to the firm by its seeming success.

Grant and Ward engaged in hypothecation. This legal financial practice involves using purchased securities as a guarantee to purchase additional securities on credit. The investment firm then used the investor’s collateral for multiple loans to borrow funds to trade securities on its own account, which is called rehypothecation. The whole, questionable scheme was built on probable, speculative profits, and it collapsed in the economic downturn.

The consequences of this scheme were the bankruptcy of 42 banks in the nation. New York City had 15 bank failures. Chicago experienced six bank failures, and the rest of the nation suffered with 21 bank failures. Ten thousand small companies failed and other major brokerage firms. Factories closed and workers lost their jobs. The New York Clearing House Bank issued loan certificates to key banks, easing the crisis.

The Grant’s tried to save Grant and Ward with a personal loan of $150,000 from William Henry Vanderbilt, but it wasn’t enough. They lost everything. Former President Grant tried to repay the Vanderbilt loan with his Civil War souvenirs. They weren’t worth the price of the loan, but Vanderbilt kindly considered the loan paid in full.

To be continued…

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